🐻The Bear Cave #16🐻

New Activist Reports, Yext and Smartsheet Upcoming Earnings, Tweets of the Week, and More

Jun 01, 2020

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New Activist Reports

Muddy Waters Capital published an update to its original report on Chinese online education company, GSX Techedu (NYSE: GSX — $7.49 billion). Muddy Waters wrote, “We maintain our view that GSX is a massive fraud.”

GSX was previously criticized by Citron Research, Grizzly Research, The Bear Cave, a Chinese YouTube channel, and a Chinese Fund. GSX shares are up about 32% YTD.

Last week The Bear Cave wrote about OneSmart International Group (NYSE: ONE — $386 million), another Chinese online education with significant red flags. Shares are down about 12% since our post. We remain very skeptical.

Citron went long RH (NYSE: RH — $4.17 billion), calling the furniture company “The Clear Winner from the De-Urbanization of America.”

JCap research published on NovaGold (NYSE: NG — $3.14 billion) and wrote, “NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built.”

The ShadowFall Fund released a short report on the English clothing retailer, Boohoo Group (LSE: BOO — GBP4.75 billion).

CloudyThunder Research, a new activist, called Tianneng Power (HK — 0819) “A Blatant Fraud and Dying Business.”

Behind The Balance Sheet published a blog post criticizing Netflix (NASDAQ: NFLX — $185 billion) for aggressive accounting.

Earnings Watchlist: Yext

Yext (NYSE: YEXT — $1.85 billion), a software company that helps businesses manage their web presence, is expected to report earnings on Thursday, June 4. As we previously noted Yext’s core customer group seems to be the hardest hit by the coronavirus crisis:

In the risk factors section of its 10-K Yext states,
“Negative effects [on revenue] could be exacerbated by… marketing and sales methods away from physical location retailing.”
In addition, on its March 3rd Q4 conference call Yext CEO Howard Lerman listed some new Yext customers:
“During the quarter, we signed the largest international enterprise deal in the history of the company with Accor Hotels… we also signed contracts with leading brands like First Citizens Bank, Good Year Tire, The Vanguard Group, and we expanded and renewed contracts with amazing brands like Great Clips and Hilton and Wendy's.”
These are the exact types of businesses that are getting hit hardest by coronavirus. As Yext’s customer base goes into cash conservation mode it will be incredibly difficult for Yext to sign new deals. In fact, Yext may be the type of discretionary spending companies look to cut.

Because Yext’s fiscal year ends January 31, their Q1 will be from February 1 to April 30, a period more impacted by the coronavirus crisis. Pre-coronavirus Yext was consistently unprofitable, losing $122 million on $299 million of revenue last year.

Earnings Watchlist: Smartsheet

Smartsheet (NYSE: SMAR — $6.88 billion), which makes collaborative work management software, is expected to report Q1 earnings on Wednesday, June 3 after the close. The Bear Cave previously raised concerns about Smartsheet:

In the last 60 days, Smartsheet disclosed material weaknesses in financial reporting, dismissed its auditor, and announced that its CFO would retire. Despite these red flags, Smartsheet, which makes collaborative work management software, trades at all-time highs and currently sells for 25x revenue.

Every previous quarter for Smartsheet has been a revenue beat, but last quarter was the smallest since going public. This is the company’s first quarter with its new auditor, Deloitte.

What to Read

“Behind the Fall of China’s Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee” (WSJ)

“The highflying Chinese tech darling soared in value before admitting to revenue fabrication. Records show that bulk purchasers of its products included firms linked to the chairman and controlling shareholder... Luckin sold vouchers redeemable for tens of millions of cups of coffee to companies that had ties to Luckin’s chairman.”

“Hertz Paid Out $16 Million in Bonuses, Days Before Bankruptcy” (WSJ)

“Hertz paid more than $16 million in retention bonuses to senior managers, including its new chief executive, just days before it filed for bankruptcy Friday night.”

“Anatomy of a Short Attack” (CFO Magazine)